Post-Autistic Economics Review - Issue No. 14

High priests and run-of-the-mill practitioners

Joseph Halevi

Geoff Harcourt and Bernard Guerrien are speaking about two different sentences in the same paragraph, as it were. Harcourt points out that textbooks usually treated the microeconomic theory of perfect competition as approximating some immanent tendencies of actual economic behaviour. Guerrien notes that the perfectly competitive model has got nothing to do with a market economy, it rather requires a centralised system. Both statements are correct. Many textbooks still present the competitive model as a first approximation and they are wrong of course precisely on the account of Guerrien’s observations. I tend to agree with Guerrien’s view that Stiglitz’s asymmetric information stories do not represent novel findings or new theoretical developments but they simply introduce imperfections in an otherwise standard approach. In other words, Stiglitz’s reasoning would not exist without having at its foundations traditional micro-theories. I think that this is true also for macroeconomic models which once were flagged as most innovative such as those pertaining to rationed equilibria. They all postulate the existence, somewhere, of a Walrasian equilibrium.

Thus the substantive issue is whether or not there is something to be retained from micro-theory. My own answer is in the negative. The existing body of microeconomics has no cognitive content in relation to its object of inquiry. In this respect Bernard Guerrien, a mathematician who has brought out before any English speaking economist the significance of the Sonnenschein-Mantel-Debreu theorems, has done extremely valuable work in pointing out the lack of interpretative value in the standard approach. [1] I do not agree with the view that bits and pieces may be salvaged and retained on the account of their practicality. If the demand curve can be of any shape, that is if there is no compelling reason to assume that the demand curve should be downward sloping then there is no point to retain the theories built upon that premise just for practical matters. Practicality is in itself a constructed process and if it is based on particular premises which have no reason to be selected as the more relevant ones, it becomes a trivial ex-post rationalization as well as justification of the theory. These sort of things belong more to the domain of the sociology and politics of research and of ideas in general, yet they have nothing to do with the cognitive dimension of a particular theoretical construction. I would extend my negative conclusions also to macroeconomic theory as taught in most textbooks. The latter is even in a worse shape than micro-theory since it is heavily biased towards representative agent’s models and flawed aggregate notions such as capital as a factor of production. Micro-macro theory as
it stands today in textbooks provides neither a form of basic reasoning in practical terms, nor does it help to apprehend economic concepts. Just consider the most crucial of them: price. No price is determined the way traditional theory would like us to believe. If anything, prices are likely to be determined in a monetary manner and they are connected to the process of production and the formation of multiple profit margins and rates of profit.
Furthermore a classification of price behaviour would show many different forms of adjustments hardly having anything to do with the fairy tale taught in standard lectures.

While micro-macro textbooks may easily be disregarded with no loss of knowledge as to the functioning of contemporary societies, the teaching of traditional economics, and indeed all of economics, should be linked to Joan Robinson’s principle of critically knowing a subject in order not to be fooled by its high priests and run of the mill practitioners. This is especially true when in today’s polity economics performs the same role of theology in the past as the conduit for the expression of social, economic and political interests.